Research Insight

Can Alpha be Captured by Risk Premia?

William Mok, PhD Jennifer Bender, PhD Brett Hammond, PhD

January 2013

msci.com

Research Insight Can Alpha Be Captured by Risk Premia? January 2013

Executive Summary
Accessing risk premia through the use of passive index-based portfolios has been gaining momentum in recent years. While there is a vast body of decades-old literature on systematic factors, or what we refer to here as risk premia, only recently have institutional investors accepted the notion of accessing them passively. As the number of options has proliferated, these risk premia strategies are beginning to form a third and separate category of return, sandwiched between traditional alpha and beta. Can risk premia subsume some of what has traditionally been ascribed to alpha? And in a related vein, should risk premia be viewed as a replacement for existing passive beta investments or active mandates? Prior research at MSCI has shown that relative to a market cap weighted allocation, risk premia can offer improvements in return, volatility, and/or risk-adjusted return. Empirical evidence supports that they can be considered potential substitutes for the passive beta component. What about the efficacy of risk premia as a replacement for active mandates? Past research has shown that alpha is expensive and difficult to find. Specifically, many well-regarded studies have shown that the median active manager does not outperform the cap weighted benchmark. In this paper we set out to understand the extent to which active manager returns (alpha) can be captured by risk premia. Using 10 years of historical data from January 2002 to March 2012, we find that risk premia can account for a substantial portion of alpha, as much as 80%. It is important to note that we achieve these results even when we limit our focus to the set of risk premia reflected by the current MSCI Risk Premia Indices. The opportunity set of risk premia that has not been identified or captured by indices is potentially much larger. We also find that there are managers who can produce alpha on top of risk premia. In our view these managers are the most effective at market timing (e.g., in sector or asset-class rotation), risk premia timing (commonly called factor timing), or in stock selection (timing individual stocks)investment skills that are not easily captured by rules-based indices. We illustrate a framework for incorporating managers who deliver the highest alpha, once risk premia have been accounted for. The combination of these active managers with passive portfolios tracking risk premia indices has historically yielded stronger performance at lower costs. The structure of the paper is as follows. In Section 1, we provide an overview of risk premia indices and show their historical performance relative to cap weighted indices. We discuss the past literature on the importance of risk premia in explaining stock returns and active strategies. Section 2 introduces the active manager database we have used and summarizes the empirical characteristics of active funds. In Section 3, we empirically test how much traditional active alpha can be captured by risk premia indices. Finally, in Section 4, we present an effective way to construct an equity portfolio with risk premia indices (passive) and active funds.

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Research Insight Can Alpha Be Captured by Risk Premia? January 2013

Section 1: What are Risk Premia Indices?

Introduction to the MSCI Risk Premia Indices
Traditionally, portfolio returns were attributed to a combination of passive market exposure and active portfolio management. Returns in excess of the market return were considered value added (alpha) by active management. More recently, certain returns were once considered alpha are now recognized as newly isolated forms of beta. Risk premia are part of this new category of alternative or smart beta that can be captured without the use of active management. Exhibit 1 shows the evolution of definitions of alpha and beta. A vast literature on systematic factors beginning with Ross (1976), and empirically established by Fama and French (1992, 1993), Carhart (1997), and others, have identified well-known factors that explain the cross-section of returns include value, size, momentum, liquidity, and other stock characteristics.1 Not only have these systematic factors been shown to explain a great deal of the cross-section of returns, they have also been found to account for a substantial part of long-term portfolio performance. In recent years, MSCI and others have developed a variety of new indices that enable investors to capture systematic risk premia factors identified in the research literature, and that were previously embedded inside active investment approaches. As distinguished from alpha, the key to these practical applications is that they use transparent, rules-based approaches to access each risk premia. With generally lower fees, portfolios that passively track these risk premia can offer investors a lower cost alternative to active funds, at least the ones whose alphas are derived from risk premia tilts. Exhibit 1: Todays Alpha is Tomorrows Beta

Alpha Alpha Portfolio Return Risk Premia

Beta

Beta

Risk premia strategies can be classified into two broad categories reflecting two primary ways for achieving superior risk-adjusted performance: (1) risk-based strategies which aim to lower risk or
1

Closely related to this area of asset pricing literature is the research focusing on return anomalies. Return anomalies associated with asset growth, earnings revision, earnings surprise, and a host of other characteristics have been empirically identified; see Schwert [2003], Fama and French (2008), and Keim (2008) for a review of financial market anomalies.

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Research Insight Can Alpha Be Captured by Risk Premia? January 2013

improve diversification; and (2) return-based strategies which aim to tilt towards a specific factor. The former include MSCI Equal Weighted Indices, MSCI Risk Weighted Indices, and MSCI Minimum Volatility Indices. The latter include MSCI Value Weighted Indices, MSCI High Dividend Yield Indices, and MSCI Factor Indices which aim to capture Barra fundamental factors such as Barra Momentum. For more detail on the MSCI Risk Premia Indices, we refer to Melas, Briand, and Urwin (2011). Exhibit 2: Select MSCI Risk Premia Indices2 Risk Based Strategy Indices MSCI Minimum Volatility Indices Constructed using the minimum variance optimization MSCI Risk Weighted Indices Reweights the market cap index based on the inverse of historical variance MSCI Equal Weighted Indices Equal allocation across parent index constituents Return Based Strategy Indices MSCI Value Weighted Indices Reweights the market cal index using earning, sales, book value, and cash flow MSCI High Dividend Yield Indices Reweights the market index based on dividend yield MSCI Factor Indices Constructed using long/short portfolio optimization to capture Barra risk factors

One important point is that risk premia appear to exhibit time variation. As shown in Melas, Briand, and Urwin (2011), systematically tilting an equity portfolio towards any one fundamental factor does not guarantee long-term outperformance over the market portfolio. There have been periods of over- and under-performance relative to the market for all risk premia. However, certain risk premia (e.g., Minimum Volatility and Value Weighted Indices) have exhibited low long-term correlations. This suggests that multiple risk premia allocations may benefit from diversification.

Risk Premia Indices Have Outperformed Cap Weighted Indices Historically

How have risk premia indices performed relative to market cap weighted indices? Exhibit 3 shows the superior historical performance of four risk premia indices based on the MSCI World Index constituents: Risk Weighted, Minimum Volatility, Equal Weighted, and Value Weighted Indices. From June 1988 to March 2012, each of the four risk premia indices generated higher returns and higher Sharpe ratios than the parent MSCI World Index.

Not shown in Exhibit 2 are the MSCI GDP Weighted Indices and the recently launched MSCI Quality Indices. GDP Weighted Indices can be viewed as a risk premia index which reflects country weights based on fundamentals , which is akin to a country value index. Quality Indices were not included in this analysis as they had not yet been released.

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Research Insight Can Alpha Be Captured by Risk Premia? January 2013

Exhibit 3: Performance of Selected MSCI World Risk Premia Indices

(June 1988 to March 2012)

MSCI World Index Annual Return (%) Annual Volatility (%) Return to Risk Ratio Tracking Error (%) Historical Beta 6.9 15.5 0.45 -

World Risk Weighted Index 9.7 13.8 0.70 5.4% 0.84

World Minimum Volatility Index 7.8 11.6 0.67 6.9% 0.68

World Equal World Value Weighted Weighted Index Index 8.7 16.4 0.53 5.3% 1.00 8.8 15.7 0.56 3.6% 0.98

There are additional risk premia indices3 whose historical returns and performance are discussed in Melas, Briand, and Urwin (2011). Overall, they offer improved risk-adjusted returns versus their parent indices, either through reducing risk, enhancing return, or a combination of the two.

Refining the Notion of Alpha: Where Do Risk Premia Fit in the Institutional Portfolio?
Relative to a cap weighted allocation, we have seen that risk premia indices offer attractive return and return-to-risk ratio improvement, and for risk-based risk premia, lower volatility. Thus they are potential substitutes for traditional cap weighted allocations, with specific variants chosen based on an investors return target and risk aversion. Perhaps the more interesting question is whether risk premia indices can substitute for existing active allocations. The case for replacing a portion of an active allocation with risk premia is strong, we suspect. Past research has shown that alpha is expensive and difficult to find. Specifically, empirical evidence confirms that it is difficult for active managers to earn alpha (e.g., Malkiel (1995), Gruber (1996), Wermers (2003), Jones and Wermers (2011)). In these studies, the median active manager generally does not outperform the cap weighted benchmark and even the small subset of those who do outperform are only able to maintain that outperformance for an average of about 36 months. Nevertheless, there is still a strong case for retaining an allocation to active management. In theory, if we could account for all possible risk premia, active management would still play an important role with respect to market timing (e.g., asset class, country, style, size, sector), risk premia timing (commonly called factor timing), or stock selection (which is essentially timing individual stocks). Another way to say this is that indexation can never capture the returns from timing. In practice, however, active managers capture both this pure alpha and the tilts towards various risk premia. As more and more of the latter can be captured by indexation or rules-based portfolios, the ability to identify these pure alpha managers will become more and more important to the success of an investment process4. The challenge for institutional investors will focus on finding these managers.

3 4

They include diversity weighted, pure volatility, country value, classic value, yield weighted, risk adjusted value, and pure value indices. With the growing use of alternative beta and risk premia indices, it could become even more difficult for active managers to add value through merely tilting on these risk premia.

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Section 2: How Similar Are Risk Premia Indices to Active Funds?

In the next two sections, we compare the historical performance between risk premia indices and active managers. To begin, we analyze several related dimensions: Performance of risk premia indices relative to active strategies Correlations of risk premia indices to active strategies Explanatory power of risk premia in the context of active strategy return

In this section, we consider the first two issues: how active managers and risk premia indices have performed relative to one another, and how similarly the two behave over time. The active manager database we use is from eVestment. This database contains thousands of institutional funds, US and international, across different styles and capitalization segments. In this paper, we focus on the US, given the breadth of coverage in the database for US funds. Our sample includes 1,602 managers comprising 27% US Core managers, 36% US Value managers, and 37% US Growth managers.5 Total returns are available for all the managers while active returns (relative to the managers chosen benchmarks) are available for 1,450 of these managers. Long-only managers are used across all cap segments (i.e., large cap, mid cap, and small cap). All returns are gross of fees (as only 10% of the funds in our sample report returns net of fees). We use monthly time series data from January 2002 to March 2012.6 Exhibit 4 summarizes the performance of the US managers in our sample. Average and median active excess returns have been positive over the last decade, relative to manager benchmarks. The median managers alpha (i.e., average annualized active return relative to their reported benchmark) was 0.9%, 1.3%, and 1.1% for US Core, Value, and Growth managers, respectively.7 In addition, the median managers alpha across all managers is 1.1%; see Exhibit 4. While average excess returns (alphas) are positive and do account for transactions costs, expense charges are not included.8 The average across managers was slightly higher than the median for all three segments. As in previous studies9, there is significant dispersion in returns; the 25th percentile US manager barely beat the benchmark by 20 bps while the 75th percentile manager more than doubled the median managers performance at 230 bps. Both average and median annualized tracking errors ranged between 4%-7%. Exhibit 4 also shows the performance by subperiod, highlighting the struggles of US active managers in the most recent 2009-2012 period.

We only include funds which have a full set of monthly return within the sample period. Hence, our sample is subject to a survivourship bias. This bias favors the performance of active managers making our task of showing that risk premia can account for performance more difficult, rather than less. Note that returns are not adjusted for the risk-free rate in the database. This is not inconsistent with prior results; once fees are accounted for, average or median returns can conceivably be negative. Accounting for expenses significantly reduces or, in some cases, eliminates excess returns. See Some Like It Hot, MSCI Research Insight (January 2011) by X. Kang, F. Nielsen, and G. Fachinotti.

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Exhibit 4:

Performance of Active Managers Relative to the Managers Chosen Benchmarks

(January 2002 to March 2012, Based on Reported Monthly Time Series of Active Returns Gross of Fees)

Average 25th Percentile Median 75th Percentile

Annualized Avg Active Return by Subperiod January January January January Annualized Annualized 2002200520082009Avg Active Tracking Return to December December December March Return Error Risk 2004 2007 2008 2012 1.3% 5.9% 0.22 2.1% 2.0% 0.1% 0.7% 0.2% 4.2% 0.04 -0.6% -0.3% -5.3% -1.6% 1.1% 5.4% 0.22 1.6% 1.6% 0.2% 0.3% 2.3% 7.0% 0.41 4.3% 3.7% 5.2% 2.5%

Source: eVestment Alliance and MSCI. All return metrics are geometric averages annualized based on monthly time series data from eVestment.

How have the MSCI Risk Premia Indices performed relative to the active manager sample? We compare the average annualized active returns and tracking errors over the same period. For the risk premia active returns, we subtract the performance of the MSCI USA Index from the MSCI Risk Premia Indices. The annualized average active returns for four of the indices are shown in Exhibit 5. If we compare the active returns of the four risk premia indices to the median US managers annualized return of 110 bps in Exhibit 4, two of them exceed it (Risk Weighted and Equal Weighted), one falls well below (Value Weighted) and one is slightly below (Minimum Volatility). Of the four risk premia indices, the MSCI USA Value Weighted Index is the only index that performs relatively poorly compared to the active managers in the sample10. We also show in Exhibit 5 where the indices returns fall in the distribution of active managers. For instance, the active return of the MSCI USA Risk Weighted Index is equivalent to the 82nd percentile active manager ranked by returns over the past decade while its Information Ratio of 0.71 is equivalent to the 96th percentile of active managers Information Ratios. Exhibit 5: Comparing Active Managers and MSCI Risk Premia Indices
(January 2002 to March 2012, based on Reported Monthly Time Series of Active Returns Gross of Fees)

Annualized Active Return Equivalent percentile among US managers Annualized Tracking Error Equivalent percentile among US managers Information Ratio (Return to Risk) Equivalent percentile among US managers

MSCI USA Average for Risk US Weighted Managers Index 1.3% 2.8% 82 5.9% 3.9% 20 0.22 0.71 96

MSCI USA Minimum Volatility Index 0.9% 44 6.3% 66 0.14 38

MSCI USA Equal Weighted Index 2.7% 81 5.0% 43 0.53 86

MSCI USA Value Weighted Index 0.1% 23 2.9% 6 0.03 24

10

Our results are of course dependent on the sample period which witnessed a significant deterioration of the value premium. The USA Value Weighted Index for instance soared in the first half of the 2000s, outpacing the MSCI USA Index by 481 bps annually over the period January 2000 to December 2006. Our analysis with manager returns is however constrained by the availability of returns in the eVestment database. Prior to the 2000s, the sample is much smaller.

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Research Insight Can Alpha Be Captured by Risk Premia? January 2013

Finally, we analyze the correlations between the risk premia and manager returns historically. If active manager returns are highly correlated with risk premia, it not only fuels the possibility that active funds are merely tilting on risk premia but also weakens the argument that only active managers can provide diversification. Focusing on just the US Core Manager sample, we calculate correlations using monthly data between each manager and the four risk premia indices. The median and average correlations, the percentage of managers with positive correlations, and other metrics are shown in the top panel of Exhibit 6. The median and average managers have slightly positive correlations with only two of the risk premia indices (Minimum Volatility and Risk Weighted). However, correlations at the 75th percentile for these two indices, and the maximum correlations for all four indices, are quite high. Clearly there are some managers, though not the majority, whose returns appear to be highly correlated with risk premia. What if we repeat the analysis with only the top performing managers, those who are above the median return? In other words, we would like to know if the better performing managers are more likely to have higher correlations with the risk premia indices. The bottom panel of Exhibit 6 confirms that they are indeed slightly higher. Exhibit 6: How Correlated are Active Managers and Risk Premia Indices? (US Core Managers, January 2002 to
March 2012, based on Reported Monthly Time Series of Active Returns Gross of Fees)

Min 25th Median Average 75th Correlations with All Managers USA Value-Weighted -0.71 -0.31 -0.15 -0.12 0.06 USA Minimum Volatility -0.67 -0.15 0.04 0.04 0.23 USA Risk Weighted -0.56 -0.07 0.06 0.07 0.21 USA Equal Weighted -0.68 -0.24 -0.02 -0.01 0.20 Correlations with Top Half of Managers (Annualized Returns Above Median) USA Value-Weighted -0.67 -0.28 -0.12 -0.09 0.08 USA Minimum Volatility -0.62 -0.15 0.06 0.05 0.25 USA Risk Weighted -0.42 -0.03 0.09 0.11 0.25 USA Equal Weighted -0.66 -0.21 0.02 0.02 0.25

Max 0.74 0.75 0.65 0.76 0.70 0.75 0.65 0.76

Percent of Managers with Positive Correlation 31% 57% 63% 47% 34% 58% 70% 52%

So far we have found evidence that risk premia indices compared favorably to active managers over the last decade. With respect to performance, two of the four risk premia outperformed the majority of managers (e.g., exhibited returns greater than the 75th percentile manager). We have also shown that a quarter of managers exhibited returns with correlations of approximately 0.20 and higher with at least three of the four risk premia. Managers who have historically beaten their peers have been slightly more correlated with risk premia than the overall sample. In the next section, we extend these general observations to regression-based analysis, which allows us to quantify more exactly the degree to which alpha can be attributed to risk premia.

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Section 3: How Much of Alpha Can Risk Premia Account for?

In this section, we quantify the degree to which alpha can be attributed to risk premia indices. Here, we follow a well-known and established framework developed by various academics over the past decades. Specifically, we employ time-series regressions on manager returns following Sharpe (1992), Carhart (1997), Wermers (2003), Fama and French (2008), and Ang, Goetzmann, and Shaefer (2009). This type of style analysis is also commonly used by practitioners in the industry. The idea is to regress manager returns on variables that might explain what has driven the returns. The portion of the returns left over or unexplained by the variables is commonly referred to as alpha. In the academic literature, the most widely used set of variables are the Fama and French (1992) portfolios. These are long-short zero-investment portfolios (characteristic portfolios) that are formed by sorting stocks on market capitalization and book-to-market price. A later paper by Carhart (1997) included a momentum portfolio which has also become a norm in the industry. We first run regressions using these portfolios on our sample of manager returns to confirm whether our results are similar to past empirical findings. Second, we rerun the regressions, this time using only the MSCI Risk Premia Indices. The reason for using only the latter is to determine the extent to which alpha can be captured by actual investable indices. The Fama-French-Carhart portfolios are not in a sense readily investable or actionable portfolios.11 in contrast, the MSCI Risk Premia Indices have been designed with the primary objectives of investability and replicability12.

The Four Factor Model (Fama-French-Carhart Regressions)

The basic regression using the four-factor model following Fama and French (2008) is as follows:

Rit R ft ai bi Rmt R ft si SMBt hi HMLt mi MOM t eit

(1)

where Rit is the total return for fund i for month t , R ft is the risk-free rate, Rmt is the market return,

SMBt , HMLt are the size and value-growth characteristic portfolios of Fama and French (1993), and MOM t is the Fama and French (2008) version of Carharts (1997) momentum portfolio. The alpha a t is
the average (monthly) return that is left unexplained by the factor portfolios. Given the wealth of empirical studies that have used this specification, we first run the regression using the original Fama and French factors, as well as the entire market and risk-free components13, to compare how the manager dataset we use compares to prior studies. Next, we proceed with the Fama-

11

These portfolios contain small caps and micro caps, do not include any liquidity or investability screens, and are rebalanced monthly. The constituents of the MSCI Risk Premia Indices have all fulfilled the eligibility requirements set out in the Global Investable Market Indices Methodology. In the Fama and French papers, the risk-free rate is proxied by the 1-month US T-bill rate and the market is proxied by a value-weight portfolio of NYSE, Amex, and NASDAQ stocks. All variables including the market and risk-free rate returns are available at Kenneth Frenchs website. http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html

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French specifications and use total returns from the eVestment database14. Exhibit 7 shows the results of the Fama-French regressions with the US manager dataset. (The results by type of managers appear in Exhibit 15 in Appendix A.) Both the three-factor and four-factor model are used. The average manager delivered approximately 6 basis points of alpha monthly (or 66-72 basis points annually) out of an average 6.25 percentage points of total return for the sample (of which 130 bps was active return).15 This is somewhat higher than past estimates. For instance, Fama and French (2008) estimate 36 and 39 bps alpha per year using gross returns for the 3- and 4-factor models over the period 1984-2006. The difference may be due to the manager sample; most prior studies including Fama and French (2008) use the CRSP mutual fund sample, whereas eVestment is an institutional manager database. Other studies (e.g., Bauer, Koedijk and Otten (2005)) have shown that the average institutional fund manager outperforms the average retail fund manager. Exhibit 7: Replication of Fama-French-Carhart Three and Four-Factor Models
(Total Returns from US Manager Sample in eVestment, January 2002 to March 2012)
Three Factor Model Min 25th Percentile Median Average 75th Percentile Max Percent Significant

Alpha Beta Mkt - rf Size HML Adjusted R-Sq

-0.65% 0.23 -0.49 -1.29 0.15

-0.04% 0.90 -0.02 -0.17 0.88

0.05% 0.96 0.21 0.01 0.92

0.060% 0.96 0.28 -0.01 0.90

0.15% 1.03 0.58 0.17 0.95

1.60% 1.56 1.29 0.97 0.99 100% 71% 67%

Four Factor Model

Min

25th Percentile

Median

Average

75th Percentile

Max

Percent Significant

Alpha Beta Mkt - rf Size HML Momentum Adjusted R-Sq

-0.68% 0.16 -0.48 -1.31 -0.47 0.18

-0.04% 0.91 -0.03 -0.17 -0.03 0.89

0.05% 0.98 0.20 0.01 0.02 0.93

0.056% 0.98 0.28 0.00 0.03 0.91

0.15% 1.05 0.58 0.17 0.08 0.95

1.54% 1.48 1.32 0.93 0.50 0.99 100% 71% 68% 54%

Specifically, what we want to know is what percentage of total active returns do risk premia account for? The relevant measure here is the change in alpha once the risk premia are included, relative to the alpha when only the market factor is used. Once the Size and HML factors are added, the average alpha for the managers decreases from 14.3 bps to 6 bps monthly, more than halving the alpha see Exhibit 8. In other words, on average, the Fama-French factors can account for more than half of managers alphas. (The results by manager type appear in Exhibit A2 in Appendix A.)

14

Manager returns in eVestment are available in two forms total return and active return (defined relative to a managers chosen benchmark). There are advantages and disadvantages to either. Active returns are what the managers themselves use to assess their performance and many managers will argue that using different benchmarks from what their investment process is geared towards distorts their performance. However, clearly there is a disadvantage to using a variety of benchmarks instead of a single consistent one. We run our regressions using total returns given the precedent set by earlier papers. Note that we run individual regressions on manager returns whereas Fama and French (2008) combine the managers into two portfolios (equal-weighted and value-weighted). The results using the equal-weighted are in fact identical to taking the average of the resulting coefficients. We also note the very large negative beta to the Size portfolio (representing the relative performance of small caps over large caps) as well as very high adjusted R-squares on average.

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Exhibit 8:

Results of Fama-French Regressions with and without Risk Premia

(January 2002 to March 2012, Monthly Returns)

Market only

Three Factor Model

Four Factor Model

Alpha Beta Mkt - rf Size HML Momentum Adjusted R-Sq

0.143% 1.02 N/A N/A N/A 0.86

0.060% 0.96 0.28 -0.01 N/A 0.90

0.056% 0.98 0.28 0.00 0.03 0.91

Regressions with MSCI Risk Premia Indices

Now we rerun the same regressions but replace the Fama-French factors with the relevant MSCI Risk Premia Indices. To choose which indices to use, we first examine the correlations between the (active) returns of the MSCI Risk Premia Indices (relative to the MSCI USA Index) to each other. Note that the MSCI Risk Premia Indices we use below are a subset of the full suite of indices available. These are the indices that capture the same types of risk premia as the Fama-French factors. The MSCI USA Barra Momentum Index is the only MSCI Risk Premia Index from the sub-suite of Barra Factor Indices that we use in this analysis, as it is currently the only index that captures the performance of high/low momentum stocks. Exhibit 9 shows correlations of monthly active returns between MSCI Risk Premia Indices with each other, and with the Fama-French factors. In general, the Fama-French factors have high correlations (greater than 0.7) with the most closely related MSCI Risk Premia Indices. Intuitive relationships such as the negative correlation between Momentum and Value and the negative correlation between Small Caps and Minimum Volatility are corroborated. Interestingly, the MSCI USA High Dividend Yield Index has negative active return correlations with the MSCI USA Small Cap, MSCI USA Momentum, and MSCI USA Equal Weighted Indices but a high active correlation with the MSCI USA Minimum Volatility Index. This suggests the use of dividend yield as a potential fourth risk premia (in addition to size, value, and momentum). Exhibit 9: Correlations of MSCI Risk Premia and Fama-French Factors
(June 2003 to March 2012, Monthly Active Returns)
USA USA High USA Barra USA Value- Minimum USA Risk USA Equal Dividend Momentum Weighted Volatility Weighted Weighted Yield USA Small Index USA Value-Weighted 1.00 USA Minimum Volatility -0.11 1.00 USA Risk Weighted 0.14 0.51 1.00 USA Equal Weighted 0.45 -0.45 0.36 1.00 USA High Dividend Yield 0.32 0.71 0.28 -0.42 1.00 USA Small 0.30 -0.43 0.27 0.84 -0.44 1.00 USA Barra Momentum Index -0.65 0.00 -0.12 -0.29 -0.33 -0.13 1.00 Fama French Size 0.13 -0.38 0.23 0.66 -0.40 0.92 -0.07 Fama French HML 0.72 -0.06 0.05 0.27 0.29 0.31 -0.43 Fama French - Carhart Momentum -0.75 0.16 -0.16 -0.52 -0.11 -0.21 0.70 Fama-French and MSCI Risk Premia Indices we expect to be correlated MSCI Risk Premia Indices we expect to be correlated Fama French Size Fama French HML Fama French - Carhart Momentum

1.00 0.17 -0.06

1.00 -0.33

1.00

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Next we choose combinations to most closely approximate the Fama-French factors. We also extend the regression to include the MSCI USA High Dividend Yield Index, which has had good performance and low correlation with the other MSCI Risk Premia Indices. Note that the risk-free rate and market definitions are slightly different between the following regressions and those in the previous section; specifically we use the MSCI USA Standard Index as the market and the 3-month US T-bill rate as the risk-free rate. We also use a slightly shorter time period than the Fama-French regressions due to data availability. Exhibit 10 shows the results of the regressions using various combinations of risk premia indices.16 All regressions include the MSCI USA Value Weighted Index or one of the risk-based indices, the MSCI USA Minimum Volatility Index or the MSCI USA Risk Weighted Index. The indices reflecting small cap, momentum, and dividend yield risk premia are then added. Additional combinations as well as regression results by manager type appear in Exhibit A3 in Appendix A. The results are striking and provide evidence that risk premia-based allocations can account for a significant portion of alpha on average. The change in alpha can be even greater when we use MSCI Risk Premia Indices in comparison to the Fama-French factors. Recall that using the Fama-French regressions, we found that alpha on average decreased from 14.3 bps to 6 bps monthly, more than halving the alpha. In Exhibit 10, alpha decreases from 18.1 bps to as low as 3 bps monthly, a reduction of as much as 80%. In particular, the Risk Weighted Index and Small Cap Index have the greatest impact on alpha. Note that the alpha reduction is not only consistent, but also at a substantial rate, when the adjusted R-Sq is greater than 0.90. Exhibit 10: Results of Regressions with and without Risk Premia
(Average across Managers, June 2003 to March 2012 , Monthly Returns)
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Average Across Managers

Market only

Market, Value Weighted, Min Vol

Market, Value Market, Small Market, Value Market, Small Weighted, Market, Small Cap, Value Market, Small Weighted, Rsk Cap, Value Risk Cap, Value Weighted, Min Cap, Value Wt, Weighted, Weighted Weighted Vol Weighted, HDY Momentum Momentum

Alpha Beta Mkt - rf Small Cap Value Weighted Min Vol/Risk Wtd High Dividend Yield Momentum Adjusted R-Sq

0.181% 1.08 0.86

0.212% 1.03 -0.12 -0.22 0.87

0.060% 1.15 -0.42 0.55 0.88

0.033% 0.98 0.51 -0.36 0.91

0.053% 0.95 0.50 -0.31 -0.10 0.92

0.061% 0.96 0.47 -0.20 -0.11 0.92

0.053% 1.14 -0.20 0.55 0.22 0.88

0.030% 0.98 0.51 -0.20 0.15 0.92

16 17

Additional results appear in Exhibit A4 of Appendix A. The sample period is shorter compared to the Fama-French regressions. Here we start in June 2003 as opposed to January 2002 due to limitations in history for the MSCI USA Barra Momentum Index.

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Research Insight Can Alpha Be Captured by Risk Premia? January 2013

Section 4: Constructing a Portfolio with Risk Premia and Active Funds

In this last section, we outline a method for combining risk premia indices and active funds in an institutional portfolio. In practice we have observed that investors typically begin with the choice of risk premia.18 Prior to allocating to a risk premia mandate, an institutional investor will arrive at a decision about a specific investment objective or goal: a reduction in portfolio risk or an enhancement of the portfolio risk-adjusted return. Single risk premium or combinations of risk premia can be chosen19 since empirical evidence suggests using multiple risk premia may help diversify over long cycles.20 Given a set of preselected risk premia, what is an optimal way to select active managers? Here, we demonstrate that active managers be chosen with the given risk premia in mind. Specifically, for any single or combination of risk premia, we run regressions of the manager returns on the risk premia, just as we did in the previous section. We then select those managers with the highest remaining alpha, that is, the highest return not explained by the risk premia. There are two reasons for doing so. First, the goal is to seek managers who can add performance in excess of risk premia. If risk premia can be captured more cost efficiently (i.e., passive replication tends to be substantially less costly than active management fees), it is sensible not to pay active managers to do the same. Second, in selecting managers who produce higher alpha, the goal is to choose managers whose returns are least correlated with the risk premia than equivalent lower alpha managers. This diversification between alpha and the risk premia should potentially lower risk for the same level of return, thus improving the risk-adjusted return. We illustrate this concept with the MSCI USA Risk Weighted and the MSCI Value Weighted Indices. These two indices have historically low correlation and exhibited solid performance over the long term. We simulate a portfolio that allocates 15% to each of these two indices (a combined 30% is allocated to risk premia indices) with the remaining 70% of the portfolio equally allocated across active managers.21 Next, we select the managers (from the whole universe of US managers) using an in-sample period from February 2002 to February 2007, choosing managers with the highest alpha relative to the two risk premia indices. We then evaluate the performance of the portfolio in the subsequent out-of-sample period from March 2007 to March 2012.

18

We could try to choose both active managers and risk premia indices simultaneously but realistically, framing it in this way may be unnecessarily complex for a first pass at this problem. For example, the Risk Weighted Index may help to reduce risk while the Value Weighted Index may provide exposure to a long-run value premium. Note that the amount to allocate to each risk premia will likely depend on the expected return and volatility the institutional investor assumes. For instance, a classic mean-variance optimization problem can be used to determine how much to allocate to each risk premia. Additional allocation schemes that may be considered include risk weighting, equal weighting, risk parity, and Sharpe ratio weighting. The choice of allocating 30% to risk premia is somewhat arbitrary. In practice, we have seen a range of allocations to risk premia from 20% to 100%. The results using different allocations effectively scale linearly with the returns to the risk premia relative to active managers. Qualitatively the conclusions remain the same.

19

20

21

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Research Insight Can Alpha Be Captured by Risk Premia? January 2013

Exhibit 11: Relative Performance of the MSCI USA Risk Weighted and MSCI USA Value Weighted Indices
(December 1988 to November 2012)

130

Cumulative Active Returns (Relative to USA) (December 1988 = 100)

120 110 100 90 80 70 60 50

Dec-89

Dec-91

Dec-92

Dec-93

Dec-94

Dec-96

Dec-98

Dec-00

Dec-02

Dec-04

Dec-05

Dec-06

Dec-07

Dec-09

Dec-11

Dec-88

Dec-90

Dec-95

Dec-97

Dec-99

Dec-01

Dec-03

Dec-08

Dec-10

MSCI USA Risk Weighted Index

MSCI USA Value Weighted Index

First, we plot the two indices relative returns (relative to the MSCI USA Index) in Exhibit 11, to illustrate their performance during the in-sample and out-of-sample periods. During the first period, February 2002 to February 2007, both indices outperformed the MSCI USA Index, only losing ground after November 2006. During the second period, March 2007 to March 2012, the Risk Weighted Index experienced consistent outperformance while the Value Weighted Index was tepid, underperforming the MSCI USA slightly. The variations in performance, at different times, further emphasize the use of two or more risk premia indices to achieve diversification. Next we show the results of forming a portfolio that allocates 30% to these two indices and 70% to the top 10 alpha managers. Overall, Exhibit 12 and 13 display higher returns to this portfolio relative to using active managers alone. In Exhibit 12, in sample, the portfolio formed using top alpha managers and risk premia beats the majority of managers; it outperforms even the average of the fourth quartile. In Exhibit 13, the portfolio outperforms even the top 10 managers, which were the top performers in the in-sample period. These results are significant and arguably impressive given that at least one of the risk premia indices, the MSCI USA Value Weighted Index, was weak during the out-of-sample period.

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Research Insight Can Alpha Be Captured by Risk Premia? January 2013

Exhibit 12: In-Sample Performance of MSCI USA Value Weighted and Risk Weighted Indices Combined with Top Alpha Managers (February 2002 to February 2007)
Average Across Managers Below Median Mgrs 6.81 12.55 0.54 3.27 0.26 Above Median Mgrs 14.16 13.28 1.07 6.41 1.19 Top 10 Alpha Mgrs + MSCI USA Risk Weighted & MSCI USA Value Weighted 17.54 11.79 1.49 5.59 1.86

Annual Return (%) Annual Risk (%) Return to Risk Ratio Tracking Error (%) Information Ratio

MSCI USA 5.92 12.48 0.47

N/A N/A

1st 2nd 3rd 4th Quartile Quartile Quartile Quartile 4.98 8.66 11.69 16.68 12.62 12.56 12.92 13.73 0.39 0.69 0.90 1.21 2.91 3.83 5.32 7.55 -0.30 0.67 1.01 1.31

Top 10 Mgrs 29.31 15.89 1.84 9.63 2.15

Exhibit 13: Out-of-Sample Performance of MSCI USA Value Weighted and Risk Weighted Indices Combined with Top Alpha Managers (March 2007 to March 2012)
Average Across Managers Below Median Mgrs 4.10 19.46 0.21 2.77 0.64 Above Median Mgrs 3.64 21.77 0.17 5.05 0.36 Top 10 Alpha Mgrs + MSCI USA Risk Weighted & MSCI USA Value Weighted 6.20 18.80 0.33 3.72 0.98

Annual Return (%) Annual Risk (%) Return to Risk Ratio Tracking Error (%) Information Ratio

MSCI USA 2.37 18.98 0.12

N/A N/A

1st 2nd 3rd 4th Quartile Quartile Quartile Quartile 4.58 3.61 3.85 3.41 19.13 19.80 20.85 22.72 0.24 0.18 0.18 0.15 2.98 2.75 3.92 6.26 0.73 0.50 0.46 0.29

Top 10 Mgrs 5.36 23.52 0.23 8.28 0.47

Note that the manager rankings by quartiles, above/below median, and top 10 segments in both exhibits are conducted only in the first in-sample period. We then tracked and evaluated these same managers performance in the out-of-sample period which is illustrated in Exhibit 13. Prior studies have shown that persistence of manager performance is generally not high; this explains why the bottom quartile managers in the in-sample period overwhelmingly outperformed all other managers in the outof-sample period. Furthermore, we note that all the active manager returns are gross of fees. Fees have historically been substantially higher for actively managed funds in comparison to passive index-tracking funds. Accounting for fees, the performance differential between an active-only portfolio and active-plus-riskpremia portfolio would further improve. The example we have shown is meant to be illustrative regarding the benefits of selecting active managers after accounting for risk premia tilts. We stress however that the example is dependent on the risk premia indices chosen and the time period. In particular, the performance of risk premia and the persistence of the manager sample during a selected time period can impact the results significantly. In summary, we present a general framework to incorporate risk premia indices together with the highest and least correlated alpha funds. Using real investment objective that are currently considered and adopted by institutional investors, we have highlighted that risk-adjusted return enhancement is potentially obtained by allocating to risk premia indices in conjunction with certain active funds.

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Conclusion
Institutional investors are increasingly adopting risk premia indices and some have started investigating the possibility of combining risk premia indices with active mandates. Two of the most important considerations are (1) the way in which premia indices relate to actively managed funds, and (2) the method for combining them. To address these two points, we demonstrate empirically that a considerable amount of alpha can be captured by risk premia. We confirm this both with theoretical factors (the original Fama and French factors) and the MSCI Risk Premia Indices, which provide investable versions of several risk premia. In fact, we find that certain combinations of the MSCI Risk Premia Indices can account for even more alpha than the theoretical risk premia. We then present a general framework for constructing a blended portfolio of risk premia indices and actively managed funds. We find empirical evidence for selecting active managers that have the highest persistent alpha once risk premia have been accounted for.

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Reference
Ang, A., W. N. Goetzmann and S. M. Schaefer (2009), Evaluation of Active Management of the Norwegian Government Pension Fund Global, www.regjeringen.no. Bauer, R., K. Koedijk and R. Otten (2005), International Evidence on Ethical Mutual Fund Performance and Investment Style, Journal of Banking and Finance, 29(7), 1751-1767. Carhart, M. (1997), On Persistence in Mutual Fund Performance, Journal of Finance 52(1), 57-82. Fama, E., and K. French (1992), The Cross-Section of Expected Stock Returns, Journal of Finance 47(2), 427465. Fama, E., and K. French (1993), Common Risk Factors in the Returns on Stocks and Bonds, Journal of Financial Economics 33(1), 3-56. Fama, E., and K. French (2008), Dissecting Anomalies, Journal of Finance 63(4), 1653-1678. Gruber, M. (1996), Another Puzzle: The Growth in Actively Managed Mutual Funds, Journal of Finance 52, 783-810. Jones, R.C. and R. Wermers (2011), Active Management in Mostly Efficient Markets, Financial Analysts Journal 67(6), 29-45. Kang, X., F. Nielsen and G. Fachinotti (2011), Some Like it Hot, MSCI Bara Research Insight, Jan. 2011. Malkiel (1995), Returns from Investing in Equity Mutual Funds 1971 to 1991, Journal of Finance 50, 549-572. Melas, D., R. Briand and R. Urwin (2011), Harvesting Risk Premia with Strategy Indices: From Todays Alpha to tomorrow Beta, MSCI Research Insight, Sept. 2011. Ross, S. (1976), The Arbitrage Theory of Capital Asset Pricing, Journal of Economic Theory 13, 341-360. Sharpe, W. F. (1992), Asset Allocation: Management Style and Performance Measurement, Journal of Portfolio Management, Winter, 7-19. Wermers, R. (2003), Is Money Really Smart? New Evidence on the Relation between Mutual Fund Flows, Manager Behavior, and Performance Persistence. Unpublished paper, University of Maryland (May).

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Appendix A
Exhibit A1: Fama French Regression Results by Manager Sub-Type
(January 2002 to March 2012, Monthly Returns)
Core Managers
Three Factor Model Min 25th Percentile Median Average 75th Percentile Max Percent Significant

Alpha Beta Mkt - rf Size HML Adjusted R-Sq

-0.41% 0.41 -0.23 -0.38 0.23

-0.04% 0.88 -0.06 -0.05 0.90

0.04% 0.94 0.10 0.02 0.94

0.060% 0.93 0.23 0.02 0.92

0.13% 1.01 0.54 0.09 0.96

0.98% 1.39 1.12 0.39 0.99 100% 68% 37%

Four Factor Model

Min

25th Percentile

Median

Average

75th Percentile

Max

Percent Significant

Alpha Beta Mkt - rf Size HML Momentum Adjusted R-Sq Value Managers
Three Factor Model

-0.41% 0.42 -0.25 -0.37 -0.26 0.23

-0.04% 0.90 -0.06 -0.04 -0.02 0.91

0.04% 0.96 0.08 0.03 0.03 0.94

0.055% 0.95 0.23 0.03 0.03 0.92

0.13% 1.01 0.55 0.10 0.07 0.96

0.99% 1.37 1.16 0.40 0.29 0.99 100% 68% 42% 55%

Min

25th Percentile

Median

Average

75th Percentile

Max

Percent Significant

Alpha Beta Mkt - rf Size HML Adjusted R-Sq

-0.49% 0.23 -0.49 -0.21 0.15

0.00% 0.88 -0.07 0.12 0.89

0.09% 0.94 0.16 0.21 0.92

0.103% 0.94 0.24 0.22 0.91

0.20% 1.01 0.54 0.31 0.95

0.98% 1.48 1.09 0.97 0.99 100% 72% 78%

Four Factor Model

Min

25th Percentile

Median

Average

75th Percentile

Max

Percent Significant

Alpha Beta Mkt - rf Size HML Momentum Adjusted R-Sq

-0.41% 0.16 -0.48 -0.23 -0.47 0.18

0.00% 0.89 -0.07 0.12 -0.06 0.90

0.08% 0.94 0.17 0.21 -0.01 0.93

0.106% 0.93 0.24 0.22 -0.01 0.91

0.20% 0.99 0.54 0.31 0.04 0.95

0.97% 1.24 1.12 0.93 0.26 0.99 100% 73% 79% 47%

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Research Insight Can Alpha Be Captured by Risk Premia? January 2013

Growth Managers
Three Factor Model Min 25th Percentile Median Average 75th Percentile Max Percent Significant

Alpha Beta Mkt - rf Size HML Adjusted R-Sq

-0.65% 0.28 -0.30 -1.29 0.18

-0.07% 0.92 0.07 -0.33 0.87

0.02% 1.00 0.34 -0.24 0.91

0.019% 1.00 0.36 -0.24 0.89

0.12% 1.08 0.65 -0.13 0.93

1.60% 1.56 1.29 0.35 0.98 100% 72% 77%

Four Factor Model

Min

25th Percentile

Median

Average

75th Percentile

Max

Percent Significant

Alpha Beta Mkt - rf Size HML Momentum Adjusted R-Sq

-0.68% 0.35 -0.30 -1.31 -0.22 0.20

-0.08% 0.97 0.05 -0.32 0.00 0.88

0.01% 1.05 0.31 -0.23 0.06 0.91

0.008% 1.04 0.35 -0.24 0.06 0.90

0.12% 1.11 0.64 -0.12 0.12 0.94

1.54% 1.48 1.32 0.38 0.50 0.98 100% 71% 78% 61%

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Research Insight Can Alpha Be Captured by Risk Premia? January 2013

Exhibit A2:

Results of Fama-French Regressions with and without Risk Premia by Manager Sub-Type
(January 2002 to March 2012, Monthly Returns)
Three Factor Model Four Factor Model

Average Across Managers

Market only

Core Managers Alpha Beta Mkt - rf Size HML Momentum Adjusted R-Sq Value Managers Alpha Beta Mkt - rf Size HML Momentum Adjusted R-Sq Growth Managers Alpha Beta Mkt - rf Size HML Momentum Adjusted R-Sq

0.132% 0.98 N/A N/A N/A 0.89 0.204% 1.01 N/A N/A N/A 0.86 0.093% 1.05 N/A N/A N/A 0.84

0.060% 0.93 0.23 0.02 N/A 0.90 0.103% 0.94 0.24 0.22 N/A 0.91 0.019% 1.00 0.36 -0.24 N/A 0.89

0.056% 0.98 0.28 0.00 0.03 0.91 0.106% 0.93 0.24 0.22 -0.01 0.91 0.008% 1.04 0.35 -0.24 0.06 0.90

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Research Insight Can Alpha Be Captured by Risk Premia? January 2013

Exhibit A3:

Results of Regressions with and without Risk Premia for Manager Sub-Types
(Average across Managers, June 2003 to March 2012, Monthly Returns)

Value Weighted as the Baseline

Market only Plus USA Value Plus USA Value Plus USA Value Weighted, Min Weighted, Risk Weighted, Min Vol Weighted Vol, HDY

Core Managers
Alpha Beta Mkt - rf Value Weighted Min Vol or Risk Wtd High Dividend Yield Adjusted R-Sq 0.168% 1.05 N/A N/A N/A 0.88 0.186% 1.09 N/A N/A N/A 0.87 0.186% 1.10 N/A N/A N/A 0.82 0.194% 1.01 -0.06 -0.18 N/A 0.89 0.226% 1.01 0.55 -0.14 N/A 0.88 0.212% 1.08 -0.81 -0.32 N/A 0.85 0.058% 1.10 -0.32 0.51 N/A 0.90 0.082% 1.10 0.28 0.57 N/A 0.89 0.041% 1.22 -1.15 0.55 N/A 0.86 0.107% 1.02 0.11 0.51 -0.32 0.91 0.123% 1.03 0.64 0.58 -0.27 0.91 0.124% 1.08 -0.42 0.56 -0.54 0.88

Value Managers
Alpha Beta Mkt - rf Value Weighted Min Vol or Risk Wtd High Dividend Yield Adjusted R-Sq

Growth Managers
Alpha Beta Mkt - rf Value Weighted Min Vol or Risk Wtd High Dividend Yield Adjusted R-Sq

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Research Insight Can Alpha Be Captured by Risk Premia? January 2013

Small Cap & Value Weighted as Baselines

Plus USA Small Cap, Value Weighted Plus USA Small Plus USA Small Cap, Value Cap, Value Plus USA Small Weighted, Min Weighted, Risk Cap, Value Vol Wgt Weighted, HDY

Average Across Managers

Market only

Core Managers
Alpha Beta Mkt - rf Small Cap Value Weighted Min Vol/Risk Wtd High Dividend Yield Adjusted R-Sq 0.168% 1.05 N/A N/A N/A N/A 0.88 0.186% 1.09 N/A N/A N/A N/A 0.87 0.186% 1.10 N/A N/A N/A N/A 0.82 0.039% 0.95 0.45 -0.26 N/A N/A 0.93 0.078% 0.95 0.45 0.37 N/A N/A 0.92 -0.013% 1.03 0.61 -1.12 N/A N/A 0.90 0.053% 0.94 0.45 -0.23 -0.07 N/A 0.93 0.085% 0.94 0.45 0.38 -0.04 N/A 0.92 0.023% 0.98 0.60 -1.03 -0.18 N/A 0.90 0.045% 0.95 0.46 -0.25 -0.04 N/A 0.93 0.069% 0.96 0.44 0.35 0.06 N/A 0.92 0.021% 1.00 0.67 -1.05 -0.23 N/A 0.90 0.057% 0.94 0.43 -0.16 N/A -0.07 0.93 0.079% 0.95 0.45 0.37 N/A 0.00 0.92 0.047% 0.99 0.53 -0.78 N/A -0.23 0.90

Value Managers
Alpha Beta Mkt - rf Small Cap Value Weighted Min Vol/Risk Wtd High Dividend Yield Adjusted R-Sq

Growth Managers
Alpha Beta Mkt - rf Small Cap Value Weighted Min Vol/Risk Wtd High Dividend Yield Adjusted R-Sq

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Research Insight Can Alpha Be Captured by Risk Premia? January 2013

Momentum as the Baseline

Plus USA Value Weighted, Min Plus USA Value Vol, Weighted, Rsk Momentum Wt, Momentum Plus USA Small Plus USA Small Cap, Value Cap, Value Weighted, Min Weighted, Vol, Momentum Momentum

Market only

Core Managers
Alpha Beta Mkt - rf Small Cap Value Weighted Min Vol/Risk Wtd Momentum Adjusted R-Sq 0.168% 1.05 N/A N/A N/A N/A 0.88 0.186% 1.09 N/A N/A N/A N/A 0.87 0.186% 1.10 N/A N/A N/A N/A 0.82 0.188% 1.00 N/A 0.10 -0.17 0.17 0.89 0.223% 1.01 N/A 0.63 -0.14 0.08 0.89 0.199% 1.07 N/A -0.46 -0.31 0.35 0.86 0.052% 1.10 N/A -0.14 0.51 0.18 0.90 0.079% 1.10 N/A 0.37 0.58 0.09 0.90 0.029% 1.21 N/A -0.79 0.56 0.37 0.86 0.036% 0.95 0.45 -0.14 N/A 0.12 0.93 0.077% 0.95 0.45 0.40 N/A 0.03 0.92 -0.020% 1.03 0.61 -0.83 N/A 0.29 0.90 0.049% 0.93 0.44 -0.11 -0.07 0.12 0.93 0.084% 0.94 0.45 0.42 -0.03 0.03 0.92 0.015% 0.98 0.59 -0.75 -0.17 0.28 0.91

Value Managers
Alpha Beta Mkt - rf Small Cap Value Weighted Min Vol/Risk Wtd Momentum Adjusted R-Sq

Growth Managers
Alpha Beta Mkt - rf Small Cap Value Weighted Min Vol/Risk Wtd Momentum Adjusted R-Sq

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Research Insight Can Alpha Be Captured by Risk Premia? January 2013

Exhibit A4:

Results of Regressions with and without Risk Premia

(Average across Managers, June 2003 to March 2012, Monthly Returns)

Average Across Managers

Market only

Market, Value Weighted

Market, Min Vol

Market, Risk Market, Weighted Small Cap

Alpha Beta Mkt - rf Small Cap Value Weighted Min Vol/Risk Wtd High Dividend Yield Momentum Adjusted R-Sq

0.181% 1.08 0.86

0.174% 1.10 -0.22 0.87

0.220% 1.02 -0.24 0.86

0.097% 1.11 0.43 0.87

0.049% 0.96 0.50 0.90

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Research Insight Can Alpha Be Captured by Risk Premia? January 2013

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